There has been a wave of fintech startups emerging that make different kinds of investing more accessible to a wider pool of people, and today one of them has raised a substantial round of money to help fill out its mission.
YieldStreet — which provides a platform for making alternative investments in areas like real estate, marine/shipping, legal finance, commercial loans and other opportunities that in the past were only open to institutional investors — is today announcing that it has raised $62 million in a Series B round of funding.
Co-founder and CEO Milind Mehere said in an interview that the money will be used to build a fundamental expansion of the platform so that any interested party can invest.
With a view to improving everyone’s financial lot in life, the name of the game is capitalism, and more specifically democratising the opportunity to invest, making it possible for more people beyond the often-cloistered and clubby environment of the investment world.
“In order for consumers to move to financial security and financial independence, they should be given access to the same products institutions have,” said Mehere. “This is aboutcreating the most wealth out of people’s money, irrespective of their net worth.”
The round was led by Edison Partners, with participation from Greenspring Associates, Raine Ventures and a large multi-billion-dollar NY family office. YieldStreet’s valuation is not being disclosed with this round. Prior to this, the company raised around $116 million, with $100 million of that in debt, according to PitchBook.
To date, YieldStreet has seen more than $600 million invested on its platform from more than 100,000 members, with an expected 12 percent IRR and more than $300 million in principal and interest payments made to its investors. Up to now a person had to be an accredited investor to benefit from this. That was already a progression on those investments being restricted only to institutions, but it is still a relatively small pool of users. In the U.S., where YieldStreet operates, being an accredited investor has a specific set of criteria that includes individuals having a net worth of at least $1 million or with annual income of $200,000 or more.
The plan is now to use the funding to expand the funnel by creating new vehicles for investing that will not require people to be accredited to get involved. This will build on groundwork the company has already laid with YieldStreet Wallet, a savings account that provides 2.2 percent interest, which is open to everyone.
The idea will be to offer non-accredited investors investment vehicles, created by YieldStreet, where they will be able to access multiple products, Mehere said. “We are working through the legal and regulatory aspects now.” He added that the company is also looking at ways of tapping into retirement and IRA accounts for these users as well.
The Jobs Act in the U.S., and the wider growth of people shifting all of their financial services online, has created a landscape of startups that are liberalising how capital moves. Many of these are specifically freeing up the arcane and rarified world of investment. They include companies like Robinhood, which has built a platform for trading public stocks. In the area of private investment — that is, investing in businesses and opportunities that are not publicly traded — we have seen PeerStreet, which is offers a service similar to YieldStreet but focusing on real estate. In the U.K., you also have startups like LendInvest, which lets property buyers bypass traditional mortgages by letting others put up the funding for those purchases.
“The ability for individual, accredited and non-accredited, investors to access products that previously were only available to institutional investors is a key part of fintech’s promise to leverage technology to create access and reduce fees on these types of investments. In addition, lower fees can be passed on to investors to allow them to achieve a higher return,” said Chris Sugden, managing partner, Edison Partners, in an email. (Sugden will also be joining the startup’s board with this investment.)
What’s interesting is that the sheer number of fintech startups, even if you only focus in on those centered around investing, will inevitably lead to some M&A down the line, and that is an area that YieldStreet will also be exploring ahead.
“We do see consolidation or another theme we call, ‘rebundling’ as well,” said Sugden. “Over the next few years we will hear more about the convergence of service offerings under a single platform.In my opinion, retail investors would like to get all of their financial services in a single, mobile application. Thus a key driver of consolidation will be the ability for sites such as YieldStreet, that are set up initially as a single product, to build or acquire new offerings. Whether these new offerings are by investment type, asset class, geography or structure all are critical to attracting investors at scale.”
